Small Businesses Enter 2016 with More Optimism

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The FINANCIAL — Small business owners expressed a level of optimism not seen in a year in the latest Wells Fargo/Gallup Small Business Index, conducted January 11-15, as the Index’s overall score rose to 67, a 13-point gain from November’s survey.

The quarterly survey, which measures the optimism of small business owners, had previously declined for three consecutive quarters, falling to an overall score of 54 in November. The January increase was the largest quarter-over-quarter increase since January 2015, when the Index also rose 13 points.

The bounce in optimism benefitted largely from small business owners feeling better about their cash flow, with 60 percent saying their cash flow was very or somewhat good over the past 12 months – a level not seen since the fourth quarter of 2007. Looking ahead, 66 percent of business owners expect their cash flow to be very or somewhat good in the next 12 months, compared to 63 percent in November. Most other Index measures had small increases or were unchanged in the first-quarter survey.

“The latest Index scores show that small business owners are more upbeat about their current and future business conditions,” said Lisa Stevens, Wells Fargo’s head of small business. “Similar to what we’ve seen in some consumer confidence surveys, improvements reported in the January survey indicate the optimism of small business owners rebounded after trending downward for much of 2015. This suggests small business owners are entering 2016 with greater confidence.”Also boosting the January Index score was the forward-looking outlook of business owners. Small business owners reported feeling more positive about the next 12 months, as the survey’s future expectations score rose eight points to 41 in January from November’s score of 33. The present situation score – how business owners rate current conditions for their business – also improved, climbing five points to 26 in January from November’s score of 21.

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Small business payment trends

The Index also gauged small business owners’ attitudes about EMV chip-enabled debit and credit cards. Beginning Oct. 1, 2015, merchants needed to convert to new EMV-enabled card processing systems or accept liability for any fraudulent point-of-sale card transactions. To meet the October 1 deadline, merchants were encouraged to update their card processing systems to accept chip-enabled cards. Almost half (48 percent) of business owners surveyed in January said that their card processing system is currently chip-enabled, up from 31 percent in August 2015. One business that recently updated their card processing system to accept chip-enabled credit and debit cards is Mango Salon, a Richmond, Va.-based hair and nail salon.

“We decided to upgrade to the new technology ahead of the requirements kicking in, not only to protect our business, but also to gain the confidence of our guests, who pay primarily via credit or debit cards,” said Jamie-Lynn Mitchell, Vice President of Finance and Planning for Mango Salon. “Since upgrading our card processing system in September, we are now able to offer our guests digital wallet payments, such as Apple Pay, in addition to chip cards.”

Of the business owners who have not updated their card processing system to accept chip-enabled cards, 22 percent plan to do so in the next six months, and 14 percent say within the next 12 months. One in five business owners (20 percent) say they never plan to upgrade.

Business owners were surveyed on the types of payments they accept from their customers with the top method being cash or check (84 percent), followed by in-person via credit or debit card at a traditional point-of-sale terminal (31 percent) and in-person via credit or debit card at a mobile point-of-sale terminal (20 percent). Business owners also reported accepting payments through their website by a variety of methods, including online payment providers (21 percent) and via credit or debit card (20 percent).

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While just five percent of business owners stated they accept payments in person via a digital wallet such as Apple Pay™ or Android Pay™, more plan to do so in the future with 11 percent saying they intend to accept payments via digital wallets in the next 12 months.

Small business technology

Also in the January survey, business owners were asked about their use of technology, including their mobile banking habits. More than half (51 percent) said they use a mobile device to conduct banking related to their business. When asked which mobile banking activity they use most often on their smartphone or tablet, business owners said:

staying on top of cash flow for their business (e.g. checking balances) (38 percent)

Mobile deposits (21 percent)

Paying bills (13 percent)

Transferring funds (12 percent)

Monitoring for out-of-pattern transactions or fraud (12 percent)

Business Owner Challenges

When business owners were asked to identify the most important challenge facing their business, 14 percent cited attracting customers and finding new business as the top concern. Other top concerns included the economy (11 percent), hiring and retaining quality staff (11 percent), and government regulations (9 percent). These challenges have been consistently reported as top concerns of small business owners since early 2013, although the order of concerns shifts from quarter to quarter.

Small Business Index Key Drivers

Wells Fargo and Gallup survey small business owners across the nation each quarter to gauge their perceptions of their present situation (past 12 months) and future expectations (next 12 months) in six key areas: financial situation, cash flow, revenues, capital spending allocation, hiring, and credit availability.


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